Lehman analyst Doug Anmuth remains upbeat on Netflix (NFLX) ahead of the firm’s Q2 Earnings release before the open on Friday:
- NFLX will show continued strength in its core DVD business due to “healthy subscriber growth (+25% to 8.437 million) and low SAC and churn ($29.93 and 4.1%):
- NFLX will make a $65-70 million investment in digital this year. The investment is “critical for Netflix to ultimately be successful in the digital space and the benefits are not yet showing up in financials.”
- NFLX’s deal with Microsoft is “a key—although largely anticipated—win for Netflix in its efforts to gain much wider distribution of its digital offering. We believe Netflix must invest significantly in acquiring digital content in order to make the streaming service an attractive value-add for X-Box subscribers.” Anmuth thinks that at least one more partnership is forthcoming but doesn’t name the expected partner.
Anmuth reiterated his Overweight rating and $37 price target and expects revenue of $337 million and GAAP EPS of $0.40, compared to consensus of $338 million and $0.41.